Sources inform ''Globes'' that, after selling assets around the world for hundreds of millions of shekels in the past year in order to improve its challenging financial situation, Electra Real Estate Ltd. (TASE:ELCRE) tried to sell its Israeli flagship property - the Electra Tower in Tel Aviv - to Azrieli Group Ltd. (TASE: AZRG). Until a year ago, Azrieli Group CEO Shlomo Sherf was CEO of Electra Real Estate, and was responsible for building the Electra Tower.
Sherf was apparently keen to proceed with the proposal for Azrieli to buy the building, reportedly for NIS 1.2 billion, compared with the NIS 1 billion value listed in Electra Real Estate's books. But Azrieli Group chairman David Azrieli torpedoed a deal, and the talks were terminated.
At the same time, Electra Real Estate, a subsidiary of Elco Holdings Ltd. (TASE: ELCO), controlled by chairman Georg Salkind, approached investment institutions, including The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), to refinance the project. Refinancing could free up NIS 200-300 million for the companies that own the Electra Tower.
The Electra Tower (formerly called the Elco Tower) is owned by three companies: Electra Real Estate and its sister company Electra Ltd. (TASE: ELTR) each own 25%, and Ampa Ltd. owns the rest. The 50-storey building has 60,000 square meters of office, commercial, and storage space. The building is 90% occupied, and its estimated net operating income (NOI) when fully occupied is NIS 90 million a year.
Bank Leumi (TASE: LUMI) provided most of the financing for the building, NIS 500 million, which it later increased to NIS 625 million, and it recently postponed the repayment to January 2013. The total investment in the project is estimated at NIS 800 million.
Electra Real Estate owns almost 100 properties in Israel, Western Europe, and Canada. The company lost NIS 275 million between January 2008 and September 2011, which wiped out its huge profit in 2007 from property revaluations.
In the past year, the company has sold several properties, due to its heavy losses, a bond downgrade, growing pressure from its creditor banks in Germany, and difficulty in raising new credit. The company's share price has fallen 60%, and its current market cap of NIS 280 million is 70% less than its shareholders' equity. The company's bond debt is NIS 600 million and the yields on its bonds are 7.5-10.3%.
Sherf's successor at Electra Real Estate, Shai Weinberg, is trying to sell more properties to meet the company's commitments on time. Conditions are difficult, since most of the company's exposure is to real estate in Europe. The company's consolidated liabilities total NIS 5.8 billion, mostly in credit from foreign banks, and the financial covenants include loan-to-value ratios.
Despite the severe crisis in Europe, which has caused a steady decline in property values, Electra Real Estate is trying to display optimism, and it is trying out various ways to improve its condition and investors' negative sentiment. In March 2011, it announced a NIS 50 million share buyback plan, and in August, it approved a NIS 100 million five-year bond buyback plan. It has since bought back NIS 40 million worth of bonds.
In July 2011, the company was embarrassed when it succeeded in raising only NIS 59 million out of a planned NIS 70 million offering. Nonetheless, the company and the analysts covering it say that, following the property sales, which totaled NIS 608 million last year, it is able to meet its debt payments due in 2012, including NIS 75 million to its bondholders. In 2013, the company is due to repay NIS 470 million in liabilities, including NIS 175 million to its bondholders.
In December 2011, Standard & Poor's Maalot Ltd. downgraded Electra Real Estate's bonds from A- to BBB+, citing the company's weak financial profile, as expressed in its very high leverage and weak debt and interest coverage ratio. Maalot believes that the company's high leverage is likely to further increase in the coming quarters.
Azrieli Group said, "For reasons of financial soundness, companies come to us with many investment offers. These offers undergo a preliminary review before an initial decision. In this case, it was decided not to move forward after the preliminary review."
Published by Globes [online], Israel business news - www.globes-online.com - on February 16, 2012
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